EURUSD Treads Water Amidst Lackluster Data

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Market Drivers for January 8, 2013
Aussie Trade Balance misses
EU data mixed
Nikkei -0.86% Europe 0.04%
Oil $93.41/bbl
Gold $1653/oz.

Europe and Asia:
AUD AiG Performance of Construction Index 38.8 vs. 37.0
AUD Trade Balance -2.64B vs. -2.21B
CHF Unemployment Rate 3.0%
EUR German Trade Balance 14.6B vs. 15.4B
EUR Eurozone Unemployment Rate 11.8%
EUR Eurozone Consumer Confidence -26.5 vs. -26.6
EUR Eurozone Retail Sales 0.1% vs. 0.3%

North America:
USD Consumer Credit 15:00

A very quiet night of trade as currency markets remained lackluster in moring European session amidst little newsflow and generally mixed economic data. The EUR/USD held ground at the 1.3100 level but couldn’t progress much beyond 1.3130 as buying rallies continued to peter out, but the unit showed some strength on the crosses gaining a bit against cable and Aussie.

In UK the BRC data showed a very lackluster performance in retail as sales rose only 0.3% versus 0.5% eyed for like-for-like stores suggesting that demand remains tepid. On the bright side however the Christmas season saw a much better performance by non-food retailers while grocers faced a large decline in sales.

Overall the weak retail data suggests that UK economy may dip into contraction for the third time since the financial crisis of 2008 creating worries amongst investors that the country’s credit rating may be downgraded as growth falters. Some experts are forecasting a sharp fall for sterling this year if the UK economy does not improve with several banks targeting 1.5000 level by year end.

In Europe the eco data was decidedly mixed with unemployment in the region rising to 11.8%. The figure was expected but nevertheless represented the highest rate on record. Retail Sales also missed their mark printing at 0.1% versus 0.3% projected as the year over year data showed a -2.6% decline. Lastly seasonally adjusted German Factory orders also declined -1.8% versus -1.4% eyed.

The mostly dour data was partially offset by a bit of an improvement in EZ business and consumer confidence with the later rising to 87 from 86.3. The news suggests that the region may be bottoming out as the economic activity could begin to pick up in Q1 of this year.

Elsewhere in Australia trade deficit missed expectations widening to 2.637 Billion AUD 2.3 Billion AUD eyed as it hits its worst level in nearly five years. A combination of lower commodity prices, higher exchange rates and a rise in imports all contributed to a deficit in terms of trade for 11th month in row. Exports rose 1% while imports increased 2%.

Experts expect that the trade numbers will improve as the year proceeds but still believe the balance will remain in deficit. Aussie slipped on the release of the data dropping below the 1.0500 level or the remainder of the Asian session but firmed a bit in European trade.

The pair has been trapped in a very tight 1.0550 -1.0450 range over the past several days, but continues to find support underneath the 1.0500 figure. For now the markets remain relatively unconcerned about the chronic trade deficits and few traders expect the latest news to influence RBA policy. However, if the trade numbers show further deterioration the central bank may be forced to consider lower rates further in order to lower the exchange rate which is clearly starting to impact the Trade balance as demand for commodities cools.

With economic releases on the docket in North America, trading may remain muted for the rest of the day, although despite less that stellar economic results the EURUSD has continued to remain bid after testing the 1.3000 level in Friday’s trade. Therefore, if the recovery in the pair continues it may try to take out the 1.3150 level as the day proceeds, but the overall volatility is likely to be contained given the lack of newsflow in the markets.

Boris Schlossberg
Managing Director

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